Insights 
VT 
In October, the US manufacturing sector’s economic activity continued to shrink. The ISM Manufacturing PMI fell to 48.7, down from 49.1 in September, not meeting the forecast of 49.5.
The report noted an increase in the Employment Index, which rose slightly to 46 from 45.3. Meanwhile, the New Orders Index saw improvement, rising to 49.4 from 48.9. The Prices Paid Index, representing input inflation, decreased to 58 from 61.9.
Impact On The Us Dollar Index
Following the release of the ISM Manufacturing PMI data, the US Dollar Index maintained modest daily gains. At the time of reporting, the index had increased by 0.15%, reaching 99.85.
The latest manufacturing data points to a clear slowdown, but the most important detail for us is the sharp drop in the Prices Paid Index. This is the fastest decline in input inflation we have seen in over a year and a strong signal that the Federal Reserve’s policy is working. We should position for the market to begin pricing in a more dovish Fed stance.
This outlook strongly favors long positions in interest rate derivatives. We believe buying March 2026 futures on 10-year Treasury notes (ZN) or call options on bond ETFs like TLT is the most direct way to trade this. The CME FedWatch Tool is now showing a nearly 60% probability of a rate cut by the end of the first quarter of 2026, a significant jump from the 40% chance priced in last week.
Strategies For Equity Markets
For equity markets, this creates a split narrative between slowing growth and the prospect of lower rates. We see this as a net positive for rate-sensitive technology and growth stocks, which suffered during the 2022-2024 tightening cycle. We should consider buying at-the-money call options on the Nasdaq 100 (QQQ) with expirations in early 2026, betting that the boost from lower rate expectations will outweigh concerns about a manufacturing slowdown.
The US Dollar’s initial resilience to this news is an opportunity for us. A dovish Fed pivot should ultimately lead to a weaker dollar, and we suspect the market is just waiting for confirmation from upcoming jobs or CPI data before selling. We are looking at buying puts on the Invesco DB US Dollar Index Bullish Fund (UUP) or buying calls on the Euro as a way to position for this expected decline.
Finally, this kind of conflicting economic data, where growth slows but inflation fears recede, often increases market uncertainty. The VIX is currently hovering around 17, which is low compared to the spikes above 30 we saw during the economic turmoil of 2022. We believe it is prudent to buy VIX call options expiring in December to hedge against a potential spike in volatility as the market digests these diverging signals.
